Are you aware of the IHT Reduced Rate of 36%?
Last updated on March 4th, 2022 at 8:16 am
In this article, we look at the IHT reduced rate of 36% which may come up if you are sitting the R03 exam and of course, the AF1 exam.
THIS ARTICLE IS RELEVANT TO EXAMINABLE TAX YEAR 2021/22
It is possible to pay a reduced rate of IHT of 36% where at least 10% of someone’s net estate is left to charity. The 10% is calculated after deducting IHT exemptions, nil rate band and any reliefs e.g. business relief.
Here’s a question from our R03 calculation workbook showing how it works in practice:
Mr Grant died on 23rd March 2022, leaving £10,000 to his favourite charity, £180,000 to his wife and £350,000 of cash to be split equally between his son and daughter. He had made no gifts during his lifetime. What is the IHT liability on Mr Grant’s estate?
Answer £
Total estate 540,000
Nil rate band -325,000
Spouse exemption -180,000
The balance is £35,000.
10% of £35,000 is £3,500.
As the charitable gift is £10,000 this is over the 10% so Mr Grant’s estate will be liable to 36% rather than 40%.
Take the gift of £10,000 from £35,000 and the balance of £25,000 is taxable at 36% = £9,000
Grab the resources you need!
If you’re studying for your CII R03 exam, and you’re aiming for a comfortable pass, you need to get all the practice you can. Grab our free taster to try out one of Brand Financial Training’s resources for yourself. Click the link to download the R03 calculation workbook taster now!
Alternatively, you can try the taster for AF1 if you’re studying for that exam.
